Welcoming Kady Buchanan, Head of Intermediary Clients at Milford, as this month’s guest author of the InvestNow Market Wrap-Up.

Looking Back at 2025 and How Markets Are Taking Shape in 2026

2025 felt fast, noisy, and occasionally disorienting. It was a year in which trends moved at the speed of social media, geopolitical developments and policy decisions shaped headlines for weeks at a time, and artificial intelligence shifted from something people talked about to something many were actively using at work. News cycles shortened, narratives changed quickly, and it often felt as though attention moved on before the last story had fully settled.

Markets mirrored that pace. Policy announcements arrived with little warning and moved prices quickly. Leadership narrowed at times to a small group of dominant stocks, then broadened again as confidence shifted and attention moved elsewhere. Periods of optimism were interrupted by sudden jolts, including trade policy surprises and sharp moves in interest rate expectations, before stability returned.

And yet, despite the constant motion, 2025 ended with most major asset classes in positive territory. It was a reminder that markets do not need calm conditions to function or even to perform, and that resilience often shows up precisely when the environment feels unsettled.

As 2026 gets underway, the conversation is moving beyond what drove returns last year and toward a new set of questions: how durable global growth may be, whether inflation continues to ease, and whether market leadership can expand beyond the narrow group of stocks that defined much of the recent market environment. Those questions are rooted in the forces that shaped 2025 and are already beginning to influence markets again this year.

2025: Strong Outcomes Through a Volatile Year

While the outcome for markets in 2025 was positive, the path was far from smooth. Investor sentiment was whipsawed by changes in policy expectations, geopolitical headlines, and ongoing debate around the longer‑term impact of artificial intelligence.

Policy-driven volatility

One of the most notable market shocks occurred in April, when tariff announcements from the United States sparked a sharp sell‑off across both equity and bond markets. The initial reaction was swift, but sentiment recovered as policy details softened and markets refocused on economic fundamentals rather than worst‑case scenarios.

By the second half of the year, markets had largely absorbed these developments, and volatility eased.

Global equities took the lead

Global share markets were the standout performers in 2025. Companies exposed to artificial intelligence delivered particularly strong returns, supported by large‑scale spending on computing infrastructure, semiconductors, and data centres.

Elsewhere, European equities benefited from improving growth expectations, while UK markets rebounded from previously depressed valuation levels. In contrast, Australasian equities meaningfully lagged the global rally, highlighting how regional differences shaped outcomes across markets.

Fixed income: credit outperformed government bonds

Within fixed income, corporate bonds generally delivered stronger performance than government bonds. Sovereign bond markets were weighed down by concerns about fiscal discipline and ongoing debt issuance, which kept upward pressure on longer‑term yields for much of the year.

These pressures eased later in 2025, but not before creating a clear performance gap between corporate and government bond markets.

Currencies and gold

Currency markets reflected similar themes. The US dollar weakened over much of the year amid fiscal concerns and policy uncertainty. This environment supported gold, which recorded its strongest annual performance in decades as investors sought diversification during periods of heightened uncertainty.

A calmer end to the year

December provided a relatively quiet finish. Share markets were flat to modestly higher, while New Zealand and Australian bond markets remained softer as expectations for further interest rate cuts faded. Australian equities began to recover after several months of underperformance, rounding out the year on a more constructive note.

The Start of 2026: Familiar Themes, New Momentum

The new year has delivered no shortage of developments. Even in its early weeks, 2026 has reinforced that markets remain highly sensitive to policy signals, geopolitical news, and evolving economic data.

Several themes have stood out:

• Evidence that US economic growth is on firmer footing as fiscal initiatives begin flowing through to household incomes and consumer demand
• A steady stream of domestic US policy announcements aimed at improving affordability and easing cost of living pressures
• Renewed attention on institutional stability in the US, contributing to continued interest in gold and other real assets
• Improving sentiment in New Zealand, with business surveys lifting as lower interest rates begin to feed through the economy
• Strengthening New Zealand and Australian dollars following a period of sustained weakness

While none of these developments have fundamentally altered the global economic outlook, they underscore the dynamic environment markets are navigating as the year unfolds.

A Shift in Market Leadership

One of the more notable early trends in 2026 has been the outperformance of European, UK, and Japanese share markets relative to the United States. Importantly, this follows a similar pattern that emerged during parts of 2025.

The explanation is largely structural rather than economic. US share market are heavily concentrated in large technology companies, which drove much of the previous year’s returns. As confidence around global growth has improved, a broader range of companies, particularly those tied more closely to traditional economic activity, have begun to perform.

Region‑specific factors have also played a role:

• In Europe, increased fiscal spending, particularly in Germany, is expected to support economic activity and corporate earnings
• In Japan, fiscal stimulus initiatives and a weaker currency have improved the outlook for exporters and corporate profitability

Together, these factors have supported stronger relative performance outside the United States, suggesting that market leadership is becoming more evenly distributed across regions.

Artificial Intelligence: From Infrastructure to Application

Artificial intelligence remains one of the most influential long‑term themes in global markets, but the focus continues to shift. For much of the past two years, returns were driven by companies building the infrastructure required for AI, such as semiconductor manufacturers and data centre operators. While this investment remains ongoing, attention is now shifting toward how AI is being adopted by everyday businesses.

There is growing optimism that AI can meaningfully improve efficiency, reduce administrative costs, and enhance productivity across a wide range of industries. Importantly, this potential is not limited to technology companies themselves.

That said, technological change has widened dispersion across markets. Early 2026 has brought sharper volatility in parts of the software sector, as investors reassess which business models are best positioned to convert expanding AI capabilities into earnings. Recent results from major technology companies also point to a more selective environment, with enthusiasm increasingly linked to demonstrated returns rather than the sheer pace or scale of AI‑related capital spending.

Bonds, Currencies, and Local Dynamics

New Zealand and Australian bond markets ended 2025 under pressure as expectations for further rate cuts diminished. Higher yields weighed on prices, a trend that extended modestly into December.

At the same time, shifts in bond markets have influenced currencies. Both the New Zealand and Australian dollars have strengthened recently, reflecting changes in interest rate expectations and broader market sentiment.

These developments highlight how global and local forces continue to interact, shaping outcomes across asset classes.

Geopolitics and Elections: A Background Influence

Geopolitical developments continue to feature prominently in market narratives, although investor reactions have generally been measured. Market participants appear more accustomed to policy brinkmanship and geopolitical tension than in years past.

Several developments remain worth watching:

• Heightened strategic competition between major global powers
• Ongoing tensions in regions critical to energy supply and global trade routes
• A crowded global election calendar in 2026, including high‑profile contests in the United States, Brazil, parts of Europe, and Asia

While geopolitics can contribute to short‑term volatility, history suggests that broader economic and earnings trends tend to have a greater influence on long‑term market outcomes.

Looking Ahead: A Broader Opportunity Set With Uncertainty

As 2026 progresses, markets appear to be balancing a constructive growth backdrop against several sources of uncertainty.

On the positive side, fiscal stimulus in the United States, the lagged impact of earlier interest rate cuts, and ongoing AI investment all support economic momentum. At the same time, elevated equity valuations in some markets and the potential for higher bond yields suggest greater sensitivity to disappointing data or policy surprises.

After the concentrated leadership of recent years, the outlook points to a market environment where performance is likely to be more evenly distributed across regions, sectors, and styles.

Continuity in a Changing Landscape

In the end, 2025 offered another reminder that markets do not need a calm backdrop to function or even to deliver positive outcomes. A year marked by frequent disruptions and shifting narratives ultimately gave way to results that reflected underlying economic resilience rather than the noise of the moment.

Early signs in 2026 suggest continuity rather than a sharp change in direction. Uncertainty remains a constant feature, but so does the influence of growth, inflation, policy, and technological change. How these forces collide, reinforce, or counter one another, rather than any single headline, is likely to define the market environment ahead.

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